Markets

July Short Report: Pressure On EEM Drops

Short sellers took some more heat off the iShares MSCI Emerging Markets Index Fund (NYSEArca:EEM) in July, though the sharp declines in global stock markets so far in August quite likely obviate the significance of the last month's short-interest data.

Indeed, major stock indexes are down about 16 percent from their April high, taking them deep into “correction” territory. And, funds like EEM have come under selling pressure in recent sessions, which suggests increases in short interest probably aren't far behind.

That said, the number of shares of EEM, the world’s second-biggest emerging markets ETF, fell by more than 25 percent last month, after dipping almost 10 percent in June. Another fund with a big change in short interest was in SPDR S&P Oil & Gas Exploration & Production ETF (NYSEArca:XOP), which saw short interest drop 23 percent last month, after it rose almost 13 percent in the prior month. Data on XOP are probably also suspect, particularly if oil demand craters in coming weeks and months.

Short interest data are rather buggy, but they still can be a useful gauge of market sentiment. To be blunt, tThe next short report can’t come quickly enough, as it’s quite likely that short interest has risen on many equity ETFs that have been on our “Big Bets” and “Really Really Short” tables in recent months.

Still, rising short interest on the Rydex CurrencyShares Euro ETF (NYSEArca:FXE) last month might mean something. The number of FXE shares short rose 9 percent in July after jumping by more than a quarter in June. Investors are clearly worried about the eurozone’s debt problems that seem to be spreading from peripheral countries like Greece to core countries like Europe.

FXE is a long bet on the euro against the dollar, so ill fortune for FXE should bode well for dollar-denominated assets such as U.S. Treasurys.

Indeed, one ETF that saw very little change in terms of shorting last month was the iShares Barclays 20+ Year Treasury Bond Fund (NYSEArca:TLT). TLT, which holds long-dated U.S. government debt, had short interest that was about steady compared to June.

That neutral outcome for TLT dovetails well with how Treasurys have performed as a “flight to safety” recently. They’ve certainly rallied strongly since global financial markets were upset by S&P’s downgrading of long-term debt, and many observers, including Barclay’s Capital, don’t see any reason why that might change in the near term even if U.S. government debt lost its risk-free status from one ratings agency.

On Wednesday, the Dow Jones industrials lost more than 500 points for the third time in a week as investors began to come to grips with what looks likely to be a prolonged period of slow growth for much of the global economy. On Wednesday, the Dow lost 519.83 points, or 4.62 percent, ending the session at 10,719.94.

XRT Spell Relief

Apart from EEM, short interest on the SPDR S&P Retail ETF (NYSEArca:XRT) also fell last month.

XRT is an ETF that’s always on the top of IndexUniverse’s “Very Very Short” table, and while that didn’t change in July, the number of XRT shares short fell almost 8 percent.

More to the point, the always-surprising percentage of shares short relative to the ETF outstanding long float fell to 483 percent from almost 600 percent in June. That sharp drop was also a function of the ETF’s assets under management jumping 13.5 percent to $646.5 million in July.

Big Bets
Ticker Name % Float Short 1 Month % Change $Short ($, M)
SPY SPDR S&P 500 46.84 -1.83 43,710.06
IWM iShares Russell 2000 124.27 -4.00 17,776.96
QQQ PowerShares QQQ 21.12 5.10 5,234.96
GLD SPDR Gold 7.67 5.03 5,060.99
XLE Energy Select SPDR 50.98 8.58 4,391.33
XRT SPDR S&P Retail 483.28 -7.81 3,127.36
IYR iShares Dow Jones U.S. Real Estate 84.65 -2.72 3,074.19
XOP SPDR S&P Oil & Gas Exploration & Production 277.64 -23.50 2,892.59
EEM iShares MSCI Emerging Markets 5.20 -25.76 2,004.38
TLT iShares Barclays 20+ Year Treasury Bond 67.40 -0.42 1,940.24

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Really Really Short
Ticker Name % Float Short 1 Month % Change $Short ($, M)
XRT SPDR S&P Retail 483.28 -7.81 3,127.36
RTH Retail HOLDRS 278.72 23.41 470.58
XOP SPDR S&P Oil & Gas Exploration & Production 277.64 -23.50 2,892.59
FXE CurrencyShares Euro 255.47 9.06 877.62
KRE SPDR KBW Regional Banking 247.43 3.29 1,100.72
SOXX iShares PHLX SOX Semiconductor 210.57 4.91 348.04
RKH Regional Bank HOLDRS 136.94 -4.80 126.29
UTH Utilities HOLDRS 127.17 0.43 58.05
IWM iShares Russell 2000 124.27 -4.00 17,776.96
SMH Semiconductor HOLDRS 107.44 -10.96 623.22

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Data is believed to be accurate; however, transient market data is often subject to subsequent revision and correction by the exchanges.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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